Case Note & Summary
The Supreme Court dealt with two appeals concerning arbitrator fees in contracts with the National Highways Authority of India (NHAI). In Civil Appeal No. 5384 of 2019, a contract dated 07.02.2006 between Gammon Engineers and Contractors Pvt. Ltd. and NHAI contained an arbitration clause and a detailed fee schedule for arbitrators, based on NHAI's policy circular of 31.05.2004. Disputes arose, and arbitration was invoked on 23.05.2017. NHAI issued a revised circular on 01.06.2017 enhancing arbitrator fees. The Arbitral Tribunal initially fixed fees as per the Fourth Schedule of the Arbitration and Conciliation Act, 1996, ignoring the agreement. NHAI moved an application under Section 14 to terminate the arbitrators' mandate, alleging they were de jure unable to act. The Delhi High Court allowed the application, holding that the fee agreement must be followed and that the Fourth Schedule is not mandatory. The Supreme Court held that the fee schedule agreed in the contract is binding, but it was liable to be revised by the 2017 circular due to the long passage of time. The court set aside the termination of mandate, finding the application disingenuous as the arbitrators merely followed a High Court judgment. In Civil Appeal No. 5383 of 2019, the court set aside the earlier High Court judgment in NHAI v. Gayatri Jhansi Roadways Limited, which had held that the Fourth Schedule governs fees regardless of agreement. The court directed the arbitrators to proceed expeditiously and deliver the award within one year.
Headnote
A) Arbitration Law - Arbitrator Fees - Agreement vs. Fourth Schedule - Section 31(8), Section 31A, Fourth Schedule, Arbitration and Conciliation Act, 1996 - The fee schedule agreed between parties in the contract is binding, and the Fourth Schedule does not override such agreement. The court held that Section 31(8) and Section 31A deal with costs generally and not directly with arbitrator fees, and the omission of 'unless otherwise agreed' in Section 31A does not affect pre-existing fee agreements. (Paras 5-8)
B) Arbitration Law - Termination of Mandate - Section 14, Arbitration and Conciliation Act, 1996 - An arbitrator does not become de jure unable to perform functions merely by following a High Court judgment that is later overruled. The application for termination was held disingenuous. (Paras 7-8)
C) Arbitration Law - Revision of Fee Schedule - Policy Circular - The fee schedule based on a 2004 circular was liable to be amended by a subsequent 2017 circular due to passage of time, and the revised schedule would apply. (Paras 6-7)
Issue of Consideration
Whether the arbitrator's fees should be governed by the fee schedule agreed upon in the contract or by the Fourth Schedule of the Arbitration and Conciliation Act, 1996, and whether the arbitrators' mandate can be terminated under Section 14 for following a High Court judgment.
Final Decision
The Supreme Court allowed Civil Appeal No. 5384 of 2019, set aside the impugned judgment terminating the arbitrators' mandate, and directed the arbitrators to proceed with arbitration expeditiously, with the fee schedule as per the 2017 circular. The court also allowed Civil Appeal No. 5383 of 2019, setting aside the earlier High Court judgment in Gayatri Jhansi Roadways Limited, but clarified that this does not affect the final award already upheld. Time for delivering the award was extended to one year from the date of judgment.
Law Points
- Arbitrator fees fixed by agreement between parties are binding
- subject to revision by mutual consent or policy changes
- Section 31(8) and Section 31A of Arbitration Act deal with costs generally
- not arbitrator fees
- Arbitrator does not become de jure unable to act by following a High Court judgment that is later overruled.
Case Details
2019 lawtext (SC) (7) 132
Civil Appeal No. 5383 of 2019 (Arising out of SLP (C) No. 3211 of 2018) and Civil Appeal No. 5384 of 2019 (Arising out of SLP (C) No. 22099 of 2018)
R. F. Nariman, Surya Kant
National Highways Authority of India (in CA 5383/2019); Gammon Engineers and Contractors Pvt. Ltd. (in CA 5384/2019)
Gayatri Jhansi Roadways Limited (in CA 5383/2019); National Highways Authority of India (in CA 5384/2019)
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Nature of Litigation
Civil appeals concerning arbitrator fees and termination of arbitrators' mandate under the Arbitration and Conciliation Act, 1996.
Remedy Sought
NHAI sought to set aside the High Court judgment that terminated the arbitrators' mandate and to have the fee schedule governed by the 2017 circular; Gammon sought to set aside the earlier High Court judgment that applied the Fourth Schedule.
Filing Reason
Dispute over arbitrator fees: whether the fee schedule agreed in the contract or the Fourth Schedule of the Arbitration Act should apply, and whether the arbitrators' mandate should be terminated for following a High Court judgment.
Previous Decisions
Delhi High Court allowed Section 14 application to terminate arbitrators' mandate, holding that the fee agreement must be followed; another Single Judge in Gayatri Jhansi Roadways Limited held that the Fourth Schedule governs fees regardless of agreement.
Issues
Whether the arbitrator's fees should be governed by the fee schedule agreed in the contract or by the Fourth Schedule of the Arbitration and Conciliation Act, 1996.
Whether the arbitrators' mandate can be terminated under Section 14 for following a High Court judgment that was later overruled.
Submissions/Arguments
NHAI argued that the fee schedule in the contract was based on a 2004 circular and should be revised by the 2017 circular, and that the Fourth Schedule does not override the agreement.
Gammon argued that the fee schedule was fixed by agreement and the Fourth Schedule is not mandatory, and that the arbitrators' mandate should not be terminated.
Ratio Decidendi
The fee schedule agreed between parties in an arbitration agreement is binding, and the Fourth Schedule of the Arbitration Act does not override such agreement. However, the fee schedule may be revised by subsequent policy circulars due to passage of time. An arbitrator does not become de jure unable to perform functions merely by following a High Court judgment that is later overruled, and such conduct does not warrant termination of mandate under Section 14.
Judgment Excerpts
We, therefore, hold that the fee schedule that is contained in the Circular dated 01.06.2017, substituting the earlier fee schedule, will now operate and the arbitrators will be entitled to charge their fees in accordance with this schedule and not in accordance with the Fourth Schedule to the Arbitration Act.
The application that was filed before the High Court to remove the arbitrators stating that their mandate must terminate, is wholly disingenuous and would not lie for the simple reason that an arbitrator does not become de jure unable to perform his functions if, by an order passed by such arbitrator(s), all that they have done is to state that, in point of fact, the agreement does govern the arbitral fees to be charged, but that they were bound to follow the Delhi High Court in Gayatri Jhansi Roadways Limited case.
Procedural History
Contract dated 07.02.2006 between Gammon and NHAI with arbitration clause and fee schedule based on 2004 circular. Disputes arose; arbitration invoked on 23.05.2017. NHAI issued revised fee circular on 01.06.2017. Arbitral Tribunal on 23.08.2017 fixed fees as per Fourth Schedule. NHAI applied for review; Tribunal on 30.01.2018 reiterated Fourth Schedule. NHAI filed Section 14 application to terminate mandate. Delhi High Court allowed Section 14 application on 20.07.2018. NHAI appealed to Supreme Court. In related appeal, High Court judgment in Gayatri Jhansi Roadways Limited dated 11.09.2017 was also challenged. Supreme Court heard both appeals and delivered judgment on 10.07.2019.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 14, Section 31(8), Section 31A, Fourth Schedule
